Space for Transparency This blog by Transparency International provides an independent and informed viewpoint on corruption. It gives a space to start a worldwide conversation on possible solutions to overcome corruption, and on governance, transparency and accountability.

State Capture in South Africa

A recently-released report on State Capture indicates that one family could seemingly succeed in skewing the spending priorities of the government in Pretoria. It’s a crisis induced by weak state institutions and it has enraged many South Africans.

South African Public Protector, Thuli Madonsela’s much anticipated report on state capture released on November 3, 2016 has added to mounting suspicion that all is not well in one of Africa’s most celebrated democracies. While its first post-apartheid constitution continues to receive international praise for being one of the most progressive documents of its kind, the report suggests that its ability to prevent the abuse of state power will remain limited as long as strong independent institutions do not back it up.

Titled ‘The State of Capture’, Madonsela’s report homes in on the fraternal relationship of the South African president, Jacob Zuma, and the Gupta family, three naturalized brothers of Indian origin who have managed to build a massive business empire on the back of government contracts since their arrival in South Africa in 1993. Zuma’s son, Duduzane, happened to be a major beneficiary of their exploits with has been a significant shareholder in a number of their companies.

The report also casts a negative light on the broader custodianship of the state by the ruling African National Congress (ANC). It asserts shoddy management of state-operated enterprises and raises important questions about the health and efficacy of key oversight institutions to arrest the encroachment of private interests on the state timeously. Its major recommendation has been to institute a judicial inquiry, headed by a judge that is nominated to the president by the chief justice, to further probe some of the claims that were made during the investigation.

The mining/energy nexus

The report pays particular attention to a contract between Eskom, the state-operated electricity utility, and Tegeta Resources and Energy, a Gupta-owned company, to supply one of Eskom’s power stations with coal from Optimum, a recently-acquired Tegeta mine.

What makes this transaction suspicious is the fact that the relevant mine belonged to the multinational, Glencore, which sold the mine to Tegeta after Eskom had fined Glencore for supplying substandard coal to the very same power station. Evidence provided to Madonsela’s investigation seems to corroborate media reports that the Mineral Resources Minister, Mosebenzi Zwane, allegedly joined the Gupta family on their journey to Zurich to seal the Tegeta deal with Glencore.

Even more troubling is the suggestion contained in the report that this transaction might not have been possible were it not for a concession from the Eskom board to make a prepayment to Tegeta for the supply of coal. This means that Eskom’s prepayment to the Gupta-owned Tegeta might have allowed the latter to buy the mine and win the tender to provide Eskom with coal that the utility itself deemed as substandard.

Referring to this transaction, the report asserts that “it appears that the conduct of the Eskom board was solely to the benefit of Tegeta”. If that would be the case it may be inconsistent with the South African Public Finance Management Act.

Persecuting political opponents with state resources

Further claims contained in the report, and substantiated by evidence presented to the investigating team by the Deputy Finance Minister, Mcebisi Jonas, former ANC MP, Vytjie Mentor, and a former senior bureaucrat, Themba Maseko, suggest that the Gupta family’s influence may have stretched as far as having the ability to appoint cabinet ministers and senior bureaucrats in strategic departments. This evidence corroborated rumors, which started doing the rounds at the end of 2015 after Zuma’s fateful decision to replace the respected Finance Minister Nhlanhla Nene with Des van Rooyen, an obscure ANC member of parliament, who had been known to have close ties with the Gupta family.

Within less than 24 hours, South African stocks plunged and its currency, the Rand, nosedived. Following significant pressure from business leaders and members of his own party, Zuma recalled Van Rooyen after only four days in office and replaced him by Nene’s equally respected predecessor, Pravin Gordhan. After this political debacle, other senior ANC members came to the fore, claiming that they were summoned to the Gupta residence and offered jobs in return for favors to the family.

In the course of 2016, Gordhan came under significant pressure from the president, and by default, his Gupta-aligned allies, who resented his appointment above their preferred candidate. The family’s newspapers and news channels were harsh in their criticism of the minister, who in the course of the year also survived a number of trumped up corruption charges relating to his tenure as Commissioner of the South African Revenue Service (SARS). These charges were dropped at Gordhan’s first court appearance, but the chain of events suggested a political prosecution that had the finger prints of the Zuma – and Gupta-backed – faction all over it.

What lies behind the onslaught on the National Treasury?

A probable explanation for this bizarre chain of events may, once again, be found within the mining and energy nexus. In recent years, President Zuma and his backers have become supporters of a proposed multibillion dollar nuclear power generation program to meet the country’s long-term energy needs. This relentless push for the procurement of nuclear facilities has, however, turned a blind eye to the government’s own integrated resource plan that advised against the immediate need for such investment, and even less so, to the exorbitant cost for a country whose national debt has become increasingly difficult to contain since the global economic crisis.

Some suggest that Zuma’s urgency on the matter, despite strong opposition within and outside his party, may point to the binding nature of a pre-existing agreement with the Russian state nuclear entity, Rosatom, that did not involve the country’s Treasury and other key stakeholders in the process. This assertion is contained in court papers filed by two environmental NGOs to set aside cooperation agreements between the SA government and Rosatom, which they believe are indeed binding in terms of procurement by the former from the latter.

Enter again the Gupta family, who in recent years have made substantial investments in uranium mining. While Madonsela’s report does not speculate on this matter, the circumstantial evidence provided to her investigative team, such as the Guptas close proximity to the president and individuals on the Eskom board, suggest that they are extremely well-positioned to become beneficiaries of such expenditure. One of their key uranium acquisitions has been the Shiva Mine, north-west of the country’s capital, Pretoria, which have been bought from Uranium One, a subsidiary of none other than Rosatom.

Again Pravin Gordhan’s National Treasury, which has indicated that it will not fund current plans for nuclear expansion, has become the major obstacle to this powerful lobby. His eviction from office will be a boon for many in this camp, and at the beginning of 2017 speculation is rife that he may become a victim of a Zuma cabinet shuffle early in the year.

How has the South Africa’s political system failed so spectacularly to arrest the rise of a kleptocratic elite?

For several years now, there has been growing concern about the extent to which that some of the country’s oversight institutions, and parliament in particular, have been hollowed out by a ruling party that views its own preservation and that of the state as one and the same thing.

Drawing on a vast reservoir of political capital, bestowed on it by a rich liberation movement legacy and iconic leaders from a previous generation like Nelson Mandela, the ANC has managed to entrench a narrative which intertwined the fortunes of the post-apartheid South African state with that of its own. Public criticism of the ANC’s rule is therefore deflected with charges of unpatriotic behavior, the peddling of imperialist agendas, and racism. This has contributed to a political climate where the lines between party deployments to powerful institutions and their capture have become blurred.

The judicial system remains above party political influence

The South African judicial system has up to now proved itself to be largely insulated from such party political influence. The country’s courts have on repeated occasions ruled against the government and in March 2016, in a case related to state expenditure on Zuma’s private home, Nkandla, the Constitutional Court ruled that the president had forsaken his constitutional duties and ordered him to pay back a proportion of the costs.

Yet, politics cannot be practiced through the courts. It places an overwhelming burden on the judiciary, and ultimately may also polarize society around the one institution that should be the ultimate guarantor of the rule of law.

South Africa’s political crisis around state capture is, therefore, by-and-large one of vulnerable institutions. While the country’s constitution is imbued with liberal democratic values, with checks and balances against the abuse of state power, the ruling party’s primary political impulse has become increasingly majoritarian, giving the impression that its interests supersede that of the state. As a result it has, at best, failed to nurture the institutions that provide these checks on its power, and at worst, undermined them, as has been the case with the Office of the Public Protector.

Under such circumstances the room for development of truly independent oversight institutions, and ultimately a fledgling democracy, are compromised. The Bertelsmann Stiftung’s Transformation Index, which analyses democracy and governance in developing and transition countries, concludes in its latest South Africa report:

Ongoing high levels of corruption, patronage, and arrogance by the new ruling class will widen the gap between the party and people. Many in the electorate will choose the “exit option” and abstain from voting. The majority, however, will choose the “voice option” and engage through (renewed) civil society activism and political parties.

And indeed, by the end of 2016 many ANC stalwarts have joined hands with broader civil society in South Africa under the Save South Africa banner – a movement that seeks to challenge Zuma’s reign of error. Yet, those campaigning as part of this movement must be acutely aware that Zuma merely represents a symptom of broader institutional decay that needs to be addressed.

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Space for Transparency

This blog by Transparency International provides an independent and informed viewpoint on corruption. It gives a space to start a worldwide conversation on possible solutions to overcome corruption, and on governance, transparency and accountability.